When tax season rolls around, it is time to start the process of filing your final return. Is this stressful? Most of the time. Is this something you want to do? Probably not.
Even though you want nothing more than to put this behind you for another year, you can?t do so until you file all the necessary returns with the appropriate authorities.
Do you need more time to prepare your individual federal tax return? If so, the IRS is more than willing to accommodate your situation. This page of the IRS website details the finer details of requesting an extension to file your tax return.
Note: just because you request an extension of time to file does not mean you have more time to pay any tax liability.
Here is what the IRS has to say about the process:
?If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by the due date for filing your calendar year return (usually April 15) or fiscal year return.?
While most people file their return on time, some require an extension for one reason or another. Here are three of the top reasons to file a tax extension:
1. You don?t have all information required to file. For example, you may be waiting for documentation of a large charitable contribution. Rather than file and have to amend your return at a later date, you can simply opt for an extension until you have all the necessary paperwork.
2. You have been hit with an emergency. Have you suffered an injury? Is somebody in your family going through a difficult time in regards to their health? Have you been called out of the country for work for an extended period of time?
Dealing with an emergency can take a lot of time and resources. Subsequently, you may not have the time to file your tax return by the deadline.
3. You require more time to change a retirement plan or make contributions. Did you know some retirement plans, such as a traditional IRA, can be funded in the year after the previous tax year? Details like this may push back your intentions of filing on time, thus leading to an extension.
The information above is geared toward extensions for individuals. The IRS offers the same to corporations and partnerships. Form 7004 and Form 1138 can provide you with more information.
In a perfect world, you will be able to file your tax return by the deadline. If something holds you back from doing so, don?t shy away from filing an extension
If you filed for a federal tax extension in April, your tax forms need to be filed by October 15th. Taxes are normally due on April 15th every year, but taxpayers are eligible to file for an automatic extension if they need more time to prepare their tax return.
It is important to note that even if you file an extension, your taxes are due April 15th, whether or not your tax forms have been completed and filed. If you filed an automatic tax extension form, it is best to include any estimated taxes owed to avoid penalties and interest. In general, you may not owe late filing or late payment penalties if you send the IRS 90% of your actual tax obligation, but there may be outliers. The good news is that you will receive a refund if you overpay your taxes.
How do Tax Extensions Work?
Filing for an automatic 6 month extension to file your taxes is easy. Simply fill out Tax Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return by the tax filing deadline. The tax deadline is usually every April 15, but the actual date can vary if that date falls on a weekend or holiday. You then have until October 15th to file your taxes with the IRS.
If you missed the deadline to file for an extension, get it in ASAP, which will minimize IRS penalties and interest owed. These penalties and fees can be substantial!
After You File Your Tax Extension
When it comes to requesting an extension on your taxes, there’s some good news and some bad news to consider.
The good news is that every American taxpayer is eligible for an automatic extension if they only ask, pushing back the due date of their return six months to Oct. 15.
The bad news? That extension is only for the paperwork itself, and not any tax payments due to the Internal Revenue Service.
“What many people do not realize is that filing for an extension only extends the time for the filing of the proper IRS forms,” said Bob Phillips, a certified public accountant and managing principal at Spectrum Management Group in Indianapolis. “It doesn’t extend the time to pay taxes that are owed. If you owe tax, you still must pay it by April 15 in order to avoid penalties and interest.”
Specifically, the IRS charges a combined penalty of 5% for each month that your return is late — 4.5% for late filing, and 0.5% for late payment.
Asking for an extension will indeed save you the pain of that larger penalty levied on those who don’t file at all, but you still must pay your taxes by April 15 or face an additional 0.5% penalty on that bill. In fact, when you ask for an extension via form 4868, Part II of that form requires you to fill out your estimated tax liability to ensure you acknowledge whether you owe something.
If you owe the IRS money and have all the proper tax forms, then, it’s probably best to simply bite the bullet and file your taxes immediately.
After all, your bill isn’t going to go away, and delaying payment may simply result in interest charges or other penalties.
With about three weeks left to file your taxes, some taxpayers may be mulling whether it’s a good idea to ask for an extension.
It’s not an uncommon strategy, with the Internal Revenue Service noting that 12 million taxpayers asked for an additional six months to file last year, or roughly 8 percent of all the returns the government agency received.
Asking for an extension is relatively easy, with the IRS estimating that the paperwork takes just minutes to fill out. By requesting an extension, taxpayers have until Oct. 15 to file their returns. The upsides include receiving an extra six months to get one’s tax documents in order, and it also allows Americans to file after April 15 without incurring a late-filing penalty.
So what’s the catch? There are a few issues that taxpayers need to be aware of before they file for an extension, such as the not-so-inconsequential issue of tax payments.
The first step in filing for an extension is to fill out Form 4868 by April 15, which provides individuals with an automatic extra six months to file their paperwork. Taxpayers aren’t asked for a reason for the extension, and it’s not considered a red flag for an audit.
But there is one big catch for taxpayers who expect to owe the federal government: Payments are still due by April 15. That means that even if you don’t have your paperwork together by mid-April, you need to have a reasonable estimate on what you owe the taxman.
Payment on 2014 taxes will need to be postmarked by April 15, along with Form 4868. Taxpayers can also pay their estimated tax payment with a credit card online or on the phone.
There are a few pitfalls to be aware of when approximating payments. If the IRS believes your estimate isn’t in the ballpark, the agency can disallow the tax extension and slap on a late-filing penalty, according to Turbo Tax. And if the estimate turns out to be less than 90 percent of the tax you owe, the IRS will tack on interest to the outstanding amount.
Still, the interest rate for underestimating a payment is far less than the late-filing penalty that would kick in by failing to file the extension or returns by April 15, according to the IRS.
The late-filing penalty will set taxpayers back by 5 percent per month on their unpaid balance. For taxpayers who file an extension but underestimate their payment, the interest rate is about 0.5 percent per month on the amount that’s still owed to the IRS, according to the agency.
Given that taxpayers are still required to pay their owed taxes by April 15, some might wonder what the advantage is for filing for an extension. Some taxpayers have complications due to K-1s, tax forms distributed by partnerships and trusts, which are notorious for arriving in late March or even after the April 15 deadline.
Regardless of the reason for filing an extension with the IRS, taxpayers should also investigate their state requirements for extensions. Each state has its own requirements, but, like the IRS, they also require taxpayers to make an estimated payment by April 15, according to TurboTax.
Six years into one of the better bull markets of the modern era, investors are still holding onto a lot of cash. According to a survey last year by State Street’s Center for Applied Research, globally retail investors are holding 40% of their assets in cash. Is this a good idea? The answer may be no.
Negative returns. Cash is one of the three major asset classes and it serves several legitimate purposes in a portfolio: it dampens volatility and provides liquidity. The cost is that cash typically produces much lower returns than stocks or bonds. Once you adjust for both inflation and taxes, average returns have been negative (See chart below).
Given that U.S. short-term interest rates are stuck at zero, and are likely to remain unusually low for some time even if the Federal Reserve starts to raise rates later this year, return for cash this year is almost certain to be negative. The only potential exception would be if the U.S. enters a deflationary environment.
Help cushion volatility with bonds. It’s true that the volatility of cash is low, but there are other ways to potentially bring down volatility in a portfolio: adding bonds is one option.
The three big credit reporting agencies are making changes that could help steer some consumers clear of the credit dog house.
Data collected by the agencies Equifax, Experian and TransUnion on hundreds of millions of people are used to create credit scores.
Those scores can determine who gets a loan and how much interest is paid on it.
The move stems from months of negotiations between the companies and New York Attorney General Eric Schneiderman, one of several state attorneys general who have placed the credit reporting industry under increased scrutiny.
Mississippi Attorney General Jim Hood sued Experian last June, claiming the firm has knowingly included error-riddled data in consumer credit files. In Ohio, Attorney General Mike DeWine is leading more than 30 states in an investigation into the credit firms. That suggests more changes by the industry could be coming.
So how will these latest changes affect you?
Q: WHAT’S CHANGING HERE? More »